Chesapeake Must Face Ohio Lawsuit Over Unpaid Royalties

Chesapeake Energy Corp. (CHK) must face an
Ohio lawsuit over allegations the company underpaid gas
royalties for years, an appeals court said, reinstating the
case.

The lawsuit, brought as a class action on behalf of Ohio
leaseholders, alleges that a Chesapeake predecessor company
began by 1993 to “deliberately and fraudulently underpay the
full gas royalty due” and that Oklahoma City-based Chesapeake
continued the practice after taking over the leases in 2005.

An Ohio trial court dismissed the lawsuit in 2010 citing a
state law that requires filing such claims within four years
after the cause of action occurs. The U.S. Court of Appeals in
Cincinnati reversed that decision today, agreeing with the
plaintiffs that allegations of continuing underpayment meant the
claims aren’t time-barred.

“The plaintiffs are permitted to pursue their breach of
contract claim pertaining to any underpayment of royalties that
occurred within four years prior to the filing of their
complaint in September 2009,” the court said.

The leaseholders may also be allowed to pursue earlier
claims if they can prove they weren’t able to discover
underpayments before the four-year period because of
“fraudulent concealment” by Chesapeake, according to the 23-page decision.

More Cases

The Ohio lawsuit isn’t the only case against Chesapeake
claiming underpayment of royalties. Chesapeake’s record in these
disputes has been mixed. Courts in Kentucky and New York have
rejected such cases. A suit in Virginia was allowed to proceed
and the parties settled.

Michael Kehs, a Chesapeake spokesman, declined to comment
on the decision. James Lowe, an attorney for the leaseholders,
didn’t immediately return a call and e-mail seeking comment.

The case is Lutz v. Chesapeake Appalachia, 10-4538/11-3034,
U.S. Court of Appeals for the Sixth Circuit (Cincinnati).